Rental growth for new lets currently stands at 5.4%, half the rate compared to a year ago but still higher than the growth in average earnings (5.1%), latest data from Zoopla reveals.
Meanwhile average rents stand at £1,245 per month in July 2024, £63 per month higher than a year ago.
A lack of supply remains a major challenge for renters due to low levels of new investment by private landlords. The number of homes for rent is up by almost a fifth on last year off a low base, but the number of homes for rent is 24% below the pre-pandemic average.
Whilst rental demand has declined over the last year as one-off pandemic factors fade, mortgage rates fall and tighter visa rules reduce migration for study and work, there are still 21 people competing for every rental property, more than double pre-pandemic levels. This explains the continued impetus for rental inflation.
TAX CHANGES
A lack of new investment in private rented homes has created a scarcity of homes for rent, compounding the strong growth in rents over the last 3 years (+30%).
Increasing the supply of homes for rent is essential to help to alleviate the scale of rent rises in the face of sustained demand.
Zoopla’s data shows a steady flow of landlords selling homes since 2016. Over 1 in 10 homes for sale on Zoopla (12.5% in July) were formerly rented. Higher mortgage rates have acted as an additional catalyst for landlord sales over the last two years on top of tax and regulatory changes dating back to 2016.
The Government’s new proposals for rental reforms as set out in the Renters Rights Bill, are already factored into many landlord decisions on whether to exit or remain in the market.
However, speculation over tax changes in the autumn budget that might impact landlords, may well result in an increase in sales of rented homes, further eroding supply for renters and pushing rents higher. The lead time to complete a property sale runs to over 20 weeks which means it is too late to start now in the hope of completing before the Budget. However, a delay in any changes to taxation that impact landlords could result in more landlord sales in the short term.
RENTS RISING
The slowdown in UK rental growth is being driven by much lower growth in London (2.5%) and a slowdown in other major UK cities (5.8%). Rents are rising at an above average level across much of the rest of the UK, covering smaller cities and towns where rental costs are lower and offer better value for money. Some of the fastest rent rises are in affordable areas adjacent to these larger cities with six postal areas registering 10% or above annual rental growth.
In Scotland, Kilmarnock (13%) and Kirkaldy (12%) have recorded the highest increase in rents which are well below (25-35%) the average rent in Glasgow. Rent controls in Scotland have also played a role exacerbating rent rises.
Source: Zoopla
Across England, rents have continued to rise quickly in Wolverhampton (12%), Oldham (11%), Darlington (10%) and Walsall (10%), all areas adjacent to large cities with higher renters or well connected for transport and access to cities further afield.
SUPPLY & DEMAND IMBALANCE
The demand for rented housing has slowed as one off pandemic factors start to fade and lower mortgage rates help some renters buy their first home.
Changes to visa rules appear likely to reduce migration for study and work. Despite a softening labour market, rental demand is likely to run at above average levels for the remainder of 2024, with rents expected to be 3 to 4% higher by the end of 2024.
The unaffordability of homeownership will continue to support demand for renting, especially across southern England where a significant number of workers cannot afford to buy. A lack of meaningful growth in the supply of affordable housing means the private rented sector will continue to meet demand from those on lower incomes, further adding to overall demand.
LACK OF HOMES
Richard Donnell, ZooplaRichard Donnell, Executive Director at Zoopla, says: “The slowdown in rental inflation is being drawn out by a lack of homes for rent and continued strong demand, driven by the unaffordability of home ownership.
“Rental inflation is slowing in some major cities where rents are high but they are still increasing quickly in more affordable areas.
“Any new policy or tax changes that result in a reduction in supply will simply push rents higher hitting low incomes renters hardest.
“It is essential policy makers focus on growing the stock of homes for rent as the primary route to slowing rental inflation and improving choice for renters. As things stand the growing unaffordability of renting is the only route to slower increases in rents.”
HIGH DEMAND
Marc von Grundherr, Benham and ReevesMarc von Grundherr, Director of Benham and Reeves, says: “There remains an incredibly high demand for good rental accommodation and we simply don’t have the supply reaching the market to satisfy this demand.
“As a result, properties are being let at an extremely quick pace and this supply and demand imbalance is driving rental values ever higher.
“Unfortunately, this is a problem that looks set to persist, with the government introducing the Right to Rent bill this week, with tax changes also expected in the Autumn Statement, both of which are likely to deter landlord investment.
“In doing so, the level of quality rental accommodation is only likely to reduce further and whilst the landlord exodus may be somewhat exaggerated, we’re already in need of more homes at present and so any further reductions in stock will only cause the rental crisis to worsen.”
LACK OF SUPPLY
Nathan Emerson, PropertymarkNathan Emerson, Chief Executive of Propertymark, says: “The rental market has been suffering from a lack of supply against an ever-growing demand for a concerningly long period of time.
“The housing sector continues to see issues escalate year on year and the real-world effects is that renters face an increasing challenge to secure a suitable property for their needs.
“With tax changes and additional liabilities being imposed on many landlords, plus increases to the general cost of living and mortgage repayments this places extreme pressure on operational costs.
“This, put against a backdrop of the Renters’ Rights Bill introduction, has the potential to add further uncertainty to the mix for current and prospective investors and contribute to worsening already worryingly low supply levels.”
“It is important that any new legislation is introduced with a balanced and fair approach for all parties involved to help encourage long-term investment in providing high-quality housing in areas that desperately need it.”
